Council tax should be cut by between £50 and £90 for people who make their homes more energy efficient, says a report from an influential watchdog.
Making homes energy efficient is crucial, says the report
The Energy Saving Trust also argues there should be stamp duty rebates for new homes which do not waste fuel.
The agency warns ministers they will miss their targets on tackling global warming unless they encourage home insulation and low carbon houses.
Households are responsible for about 30% of total UK energy use, it says.
The report suggests 1.64m homes would be likely to take up energy efficiency incentives based on council tax rebates.
Philip Sellwood, chief executive of the Energy Saving Trust, said: "Reducing household energy is a key factor in the UK meeting its climate change commitments but current policies are simply not providing consumers with the incentives to change their behaviour.
"This report reveals for the first time the tax incentives that would be most likely to inspire action and the level they would need to set at to be convincing."
Environment Minister Elliot Morley welcomed the report.
"The government is prepared to consider a wide range of options that may help us meet the challenge of cutting carbon emissions from people's homes, including the potential positive effect of tax incentives on consumer awareness of and demand for better energy efficiency," he said.